No matter what you may think about the current state of the health care system, you can’t deny that health insurance is big business. Medical care is prohibitively expensive and many consumers cannot afford it without having some type of medical insurance. From an investor’s point of view this means big money especially since this is the only industry in which the company controls how much they pay health care providers as well as how policy holders are able to use their products. If you are looking to get a piece of this pie, then here are some tips for investing in health insurance companies.

It is important to do your due diligence before investing in these companies. You need to properly assess the risks associated with a particular company. The information you gather will also provide you with fodder that can help you negotiate good deals. Some things you want to explore include where the revenue is coming from, cash flow, liabilities, and tax responsibilities. You also want to evaluate the payer mix, the number and amount of claims paid out, HIPPA, compliance with regulations, violations, and research and development of new products and services. If you can’t do it yourself then hire someone knowledgeable about these things to do it for you.

You also want to evaluate trends happening in this field both at the national level and the company’s local market. When the economy is bad, health insurance is often looked at as a luxury and people will go without if money is too tight. At the local level, if the demographics of a particular area shift that could affect how well the company does. For example, if more and more retirement aged people are moving into a particular area while the younger demographic moves out that may mean drop in revenues because most seniors are covered by Medicare. Investing in health insurance companies in that area may not be a good idea.

Lastly, you want to determine exactly how you want to go about investing in such companies. You can be a direct investor, loaning money in return for a cut of the business or you can go through an investment firm. Direct investment usually means bigger profits but also bigger risks. Going through an investment firm spreads the risk out over several investors and health insurance companies but you won’t make as much money. You can make money investing in the insurance industry. Do your research and make the best choice you can.